Australian stocks led regional markets lower this morning: The ASX dipped by 1.5% as major banks led the falls. The ASX200 has since rallied back slightly, but is still down more than 1% on the day. The Aussie dollar is also getting sold off in Asian trade after holding up relatively well overnight. A short time ago, it was down 0.37% against the US dollar at 0.7846 and had lost ground against each of the major currencies.

South Korean stocks opened 1.2% down: And declines have continued in midday trade, with the index falling by as much as 1.74%. That takes losses for the KOSPI index to around 3% this week, with South Korean stocks now well off the record highs they reached in late July. Not surprisingly, the Korean won is also lower, down a further 0.26% against the US dollar after losing 1.3% over the previous two days.

Turning to mainland China: China's benchmark Shanghai composite index opened 0.6% lower, but has faced more selling and is now down by 1.6%. But the ChiNext index — which tracks small-cap Chinese stocks and is prone to bouts of volatility — was actually 0.26% higher in midday trade.

Hong Kong stocks dipped sharply at the open: Falls in China have been almost doubled by Hong Kong's Hang Seng index, which were down by 1.2% shortly after the index opened at 11:30am AEST. Huge internet conglomerate Tencent Holdings, which is listed in Hong Kong, was down by more than 3%.

India follows its neighbours lower: India's Nifty 50 index has dropped by 0.9% at the open. After breaking through 10,000 for the first time last Friday, the index has undergone a small correction with falls of 2.47% so far this week.

Although South Korean and Indian stocks have climbed to new record highs this year as global capital moved into Asian emerging markets, the research team at Capital Economics cited three reasons why they don't expect the recent growth to last.

"First, the ongoing hostility with North Korea is not only likely to keep the MSCI Korea Index under pressure, but could also weigh a little on equities elsewhere in the region," Capital Economics said.

They also forecast that China's economy will lose some momentum in the second half of the year, and don't expect the same conribution to recent growth from the huge IT companies (think Samsung in South Korea, Tencent Holdings and India's Infosys) in the region.